Grow your money with mutual funds and segregated funds

Which type of investment is the best option for you?

So what comes next, and how can you take your money and help it grow over time?

Two of the most popular ways to invest are mutual funds, and segregated funds. Let’s look at both and see what might work for you.

What are they?

A mutual fund lets investors pool their money together into a fund managed by a professional investment company. It’s a simple, easy and accessible way to invest.

Segregated fund policies combine characteristics of insurance and mutual fund investments together. This means you can grow your investments in the financial market, while insurance protection guarantees some (or all) of your initial investment. Think of it like investing with a safety net.

What does “at maturity” mean?

It’s a date when maturity guarantees for segregated fund policies take effect – exactly when that happens depends on the policy itself. Guarantees for some policies depend on someone’s age, while others apply when someone owns the policy for a specific length of time (for example, 15 years).

How do they work?

Mutual and segregated funds work the same way.

For both investment options, money is pooled together for the benefit of the investors, and to buy a variety of different investments – for example, stocks and bonds, based on the fund’s investment goals. This does two things:

It gives you access to investment managers, which may make it easier for you, since investing on your own can be complicated.

It spreads your money among different investment options, to help reduce investment risk. For instance, if you put all your money in one stock, and it goes down, you could be in trouble. Segregated and mutual funds split money among various investment options held in a single fund, so there’s less risk.

With mutual funds, you typically have more choice... Segregated fund policies meanwhile offer more guarantees.

How are they different?

You can get most mutual funds through banks, investment companies and private firms.1

There are more fund choices available.

Segregated fund policies, meanwhile, offer more guarantees:

When you buy your policy, the insurance company guarantees some or all of your original investment (your choice – it’s typically 75 per cent or 100 per cent). So even if markets go down, you’ll get some (or all) of that original amount back when you die or your policy matures.

Over time2 you may be able to increase the amount protected by your guarantee so it matches the current market value of your investment.

There are a few things to keep in mind with segregated fund policies:

Any withdrawals from the policy will reduce the value of your guarantees.

If you cash out before you die, or before your policy matures, you get the current market value for your investment (even if it declined since you bought).

Potential for creditor protection. Your segregated fund assets may be protected from creditors This is a key feature for business owners.3

When you die, funds go to whomever you choose - also called your beneficiary.

You get more benefits, but that also means segregated funds may cost more than mutual funds.4

You can only buy segregated fund policies from a life insurance company.

What’s next?

If either investment option sounds like a good idea to you, it may be time to meet with a financial security advisor or investment representative to learn more about segregated funds or mutual funds. They can help you figure out what’s best for your needs.

1Most mutual funds can only be sold through investment representatives who must register with their provincial regulator – for example, the Ontario Securities Commission.

2Additional costs apply.

3Creditor protection depends on court decisions and applicable legislation and can be subject to change and can vary from each province; it can never be guaranteed. Clients should talk to their lawyer to find out more about the potential for creditor protection for their specific situation.

4When compared to a mutual fund with comparable instructions, strategies and risk parameters – we call this a mandate.

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A description of the key features of the segregated fund policy is contained in the information folder.

Any amount that is allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.

Make your investment decisions wisely. Important information about mutual funds is found in the Fund Facts document. Please read this carefully before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Unit values and investment returns will fluctuate.

Growing your money

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Freedom 55 Financial security advisors are with you every step of the way. Not only will they guide you through the financial security planning process by focusing on your personal needs and goals, they’ll help you understand your options so you can make smart choices. And as your needs change, your financial security plan can change, too. That’s true financial freedom.